If you hold blue chip shares in a demat account and rarely trade them, those shares are earning you nothing between dividend payments. The Securities Lending and Borrowing Mechanism (SLBM) is a SEBI-regulated way to change that.

SLBM lets you lend your idle shares to other market participants for a defined period, in exchange for a lending fee. You keep ownership of the shares. You still receive the economic equivalent of dividends. And when the lending period ends, your shares come back to your demat account.

This post is a practical guide to exactly how to do this, what income to expect, what the risks are, and what the tax treatment means for you.

 

Key Takeaways

• SLBM allows long-term shareholders to earn a lending fee on idle shares without selling them or giving up ownership.

• Lending fees typically range from 0.5 to 10 percent annualised depending on how much demand exists for that specific stock.

• All SLBM transactions are guaranteed by the exchange clearing corporation (NCL for NSE, ICCL for BSE), which eliminates counterparty risk.

• You do not retain voting rights during the lending period. Dividend equivalents are passed to you by the borrower through the clearing system.

• SLBM income is taxed as business income in India, not as capital gains. STT does not apply to SLBM transactions.

Why Long-Term Investors Leave Money on the Table

Most long-term equity investors build portfolios of strong businesses they plan to hold for years. A portfolio like this has two income sources: capital appreciation over time and dividends paid by the companies.

Between dividends, however, the shares sit in the demat account and generate nothing. Lending them through SLBM creates a third income stream without changing the investment thesis or giving up the shares.

Think of it the way you would think about renting out a property. You still own the property. You still benefit from its appreciation. While a tenant occupies it, you receive rental income. When the tenancy ends, the property comes back to you.

SLBM is exchange-regulated in India, unlike most countries where it is an OTC product. Every transaction is cleared and guaranteed by the exchange clearing corporation. This makes it significantly safer for lenders than unregulated securities lending arrangements.

How Much Can You Earn?

Lending fees are market-determined and quoted as an annualised percentage of the current value of the shares. The fee varies based on demand and supply for each specific stock:

Stock Category	Typical Annualised Lending Fee	What Drives the Fee
High-demand stocks with limited supply (short squeeze candidates)	4 to 10 percent per annum	High short-selling demand relative to available lending pool
Mid-demand blue chip stocks (Nifty 50 leaders)	1 to 3 percent per annum	Moderate demand for hedging and short-selling
Low-demand large caps with abundant supply	0.5 to 1.5 percent per annum	Limited borrowing demand. Most participants can find shares elsewhere.

These are general market estimates. Actual fees at any given time depend on live supply and demand on the exchange SLBM platform. Fees change month to month and even week to week based on F&O expiry cycles, corporate events, and broader market conditions.

A concrete example: You hold 1,000 shares of a Nifty 50 company valued at Rs. 500 each. Total value: Rs. 5,00,000. If the lending fee is 2 percent annualised, you earn Rs. 10,000 per year or approximately Rs. 833 per month on those idle shares. This is income you would not have earned by simply holding.

How to Start Lending Shares Through SLBM: Step by Step

1. Check whether your broker offers SLBM. Not all brokers are registered clearing members of NCL or ICCL. Major full-service brokers and most established discount brokers offer SLBM. Check with your broker directly or look for an SLBM or Stock Lending section in your trading app.
2. Activate the SLBM facility. Most brokers require a one-time activation of the SLBM facility on your account. This is usually done through the broker’s app or website and may involve signing an agreement. Some brokers complete this within a few days of the request.
3. Check the eligible stocks in your portfolio. Go to the NSE website’s SLB Market Data section for the current month’s list of SLBM-eligible securities. The list is updated monthly. Typically, these are F&O segment stocks and liquid stocks from the Nifty 200. Approximately 200 stocks were eligible as of 2025 and 2026.
4. Place a lending order. Through your broker’s SLBM section, specify: the stock you want to lend, the quantity, the minimum lending fee you will accept (per share per month), and the tenure (1 month to 12 months). The exchange will match your order with a borrower’s request.
5. The exchange confirms the match. Once matched, your shares are transferred to the clearing corporation, which holds them as custodian during the lending period. The borrower deposits 100 percent collateral.
6. The lending fee is credited. The lending fee is credited to your account, typically at the end of the day the trade is executed. After deducting a processing fee charged by your broker, the net lending income is credited to your trading account ledger.
7. On expiry, shares return to your demat. On the first Thursday of the expiry month (the standard SLBM settlement date), the borrower returns the shares. The clearing corporation restores them to your demat account.

What Happens to Dividends and Corporate Actions?

One of the most common questions about SLBM is whether you still receive dividends on lent shares.

During the lending period, the shares are with the clearing corporation. The dividend is technically paid to the clearing corporation, which passes the equivalent amount back to you. The exact mechanics depend on the exchange’s shut period rules, which define when lending transactions are frozen around corporate action dates.

• For dividends and stock splits, the shut period typically starts from the record date minus one day (or a few days before in some cases). During the shut period, no new lending transactions are initiated, and early payback may be required for existing transactions.
• The borrower is responsible for compensating the lender for any dividend or benefit that accrues during the lending period. The clearing corporation collects this from the borrower and passes it to the lender.
• Confirm the specific process with your broker before placing a lending order if a dividend announcement is expected in the near term for the stock you plan to lend.

What Are the Risks?

No voting rights

When your shares are on loan, you cannot vote in any shareholder meeting for those shares. If a key AGM or an important resolution is scheduled during the lending period, you will not be able to cast your vote. If voting rights matter to you for a specific holding, consider not lending those shares during the relevant period.

Limited early recall

You can generally request early return of your shares before the contract expiry, but this is subject to exchange rules and the borrower’s ability to return. In most cases it is possible but not guaranteed within a specific timeframe. Plan lending tenures around situations where you might need the shares.

Corporate action timing

If a company announces a rights issue, a buyback, or another corporate action during the lending period, the mechanics of your participation may be affected. Discuss this with your broker before lending shares in companies you know may have upcoming corporate activity.

Tax treatment requires planning

SLBM income is classified as business income in India, not capital gains. This affects how you report it. If you have no other business income, receiving SLBM lending fees may push you into the business income tax category, which has different ITR filing requirements. Consult a Chartered Accountant before starting SLBM if you are not already filing as a business income taxpayer.

Tax Treatment of SLBM Income

SLBM lending fee income is treated as business income in India and taxed at your applicable income tax slab rate.

• Securities Transaction Tax (STT) does not apply to SLBM transactions because lending is not a sale of shares.
• The shares remain in your ownership throughout the lending period. There is no transfer for capital gains purposes.
• Lending fee income is a separate income stream from capital gains or dividend income and should be reported accordingly in your ITR.
• Processing fees charged by your broker are deductible as a business expense against SLBM income.

Consult a Chartered Accountant before starting SLBM if you are uncertain about the ITR implications for your specific income profile. The classification as business income can affect your overall tax filing approach.

Who Benefits Most from SLBM?

SLBM income is most attractive for investors who:

• Hold a significant quantity of Nifty 50 or Nifty 200 stocks that they plan to keep for years.
• Have stocks that are in high demand for short sellers, which generates higher lending fees.
• Are already filing income tax returns in the business income category, making the SLBM income straightforward to report.
• Hold shares in companies without major corporate actions expected in the near term.
• Are comfortable monitoring their SLBM positions monthly and re-lending after each contract expires.

It is less attractive for investors who hold illiquid or small cap stocks not on the eligible list, who actively trade their positions and need instant access, or who plan to vote in upcoming shareholder meetings.

Fortune Wealth helps investors in Mumbai build and manage long-term equity portfolios. For questions about income-generating structures for your existing stock holdings, connect with our team.
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Frequently Asked Questions

What is SLBM and how can I earn passive income from it?

SLBM (Securities Lending and Borrowing Mechanism) is a SEBI-regulated exchange platform that lets you lend idle shares from your demat account to borrowers in exchange for a lending fee. The shares remain in your ownership. When the lending period ends, the exact shares are returned to your demat account. Lending fees typically range from 0.5 to 10 percent annualised depending on demand for the specific stock. You earn this fee without selling the shares or disrupting your long-term investment.

Which stocks can I lend through SLBM?

Only stocks approved by the NSE on its monthly SLBM eligible securities list can be lent. The list typically includes stocks in the F&O segment and liquid stocks from the Nifty 200. Approximately 200 stocks are eligible at any given time. Check the NSE website’s SLB Market Data section for the current month’s eligible securities list. ETFs are also eligible in some cases.

How much income can I expect from SLBM?

Lending fees are market-determined and vary by stock. A rough range: 0.5 to 1.5 percent annualised for large cap stocks with abundant supply, 1 to 3 percent for moderate-demand blue chips, and up to 4 to 10 percent for stocks in high short-selling demand. These are general estimates based on observed market data. Actual fees depend on live supply and demand on the exchange at the time you place your lending order.

Do I lose my dividends when I lend shares through SLBM?

No. You are entitled to receive the economic equivalent of dividends paid during the lending period. The borrower is responsible for compensating you for any dividend, and the clearing corporation collects and passes this amount through to you. The exact mechanics depend on exchange rules around shut periods near corporate action dates. Confirm the specific process with your broker before lending shares in any company with an upcoming dividend announcement.

Is SLBM income taxable in India?

Yes. SLBM lending fee income is classified as business income in India and taxed at your applicable income tax slab rate. It is not capital gains. Securities Transaction Tax (STT) does not apply because lending is not a sale of shares. If SLBM is your only business income and you currently file as a salaried individual, consult a Chartered Accountant to understand how this income should be reported in your ITR.

Can I get my shares back before the SLBM contract expires?

In most cases, you can request early recall of your lent shares before the contract expiry date. However, this is subject to exchange rules and is not guaranteed within a fixed timeframe. Some contracts allow early recall; others specify settlement at the standard monthly expiry (first Thursday of the month). Check your specific contract terms and your broker’s process for early recall before lending shares that you may need to access urgently.

Is SLBM risky for the lender?

SLBM carries relatively low risk for lenders because the exchange clearing corporation (NCL for NSE, ICCL for BSE) guarantees each transaction and requires 100 percent collateral from the borrower. The main risks are: no voting rights during the lending period, potential complexity around corporate action treatment, and the classification of income as business income for tax purposes. The clearing corporation guarantee means you will not lose your shares even if the borrower defaults, as the collateral is used to make good the lender’s position.

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